12 per cent interest. Your boss, Helen, has asked you to advise her whether the lease terms could be reduced so as to be competitive with the bank loan. The leasing company pays tax at the marginal rate of 33 per cent. Assume that the lease receipts from MRF are fully taxable.

Required:

Write a short report advising Helen of:

• the annual lease payments required for the charity to be indifferent between the bank and the leasing company;

• the effect on the leasing company’s evaluation if the lease payments were reduced to the amount calculated above (if you are unable to calculate a figure, assume £5 million per annum);

• other actions which the company could take to rescue the deal.

Supporting calculations should be provided where appropriate.